Rathbone Brothers Plc & Michael Paul Egerton-Vernon v Novae Corporate Underwriting Ltd (on its own behalf and on behalf of all the Members of Lloyd's Syndicate 2007 for the 2008 year of account) and Others (Respondents/Appellants)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Elias,Lord Justice Beatson,Lady Justice Sharp |
| Judgment Date | 14 November 2014 |
| Neutral Citation | [2014] EWCA Civ 1464 |
| Date | 14 November 2014 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case Nos: A3/2013/3657/QBCMF and A3/2013/3650/QBCMF |
[2014] EWCA Civ 1464
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION, COMMERCIAL COURT
THE HONOURABLE MR JUSTICE BURTON
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Elias
Lord Justice Beatson
and
Lady Justice Sharp
Case Nos: A3/2013/3657/QBCMF and A3/2013/3650/QBCMF
Mr Peter MacDonald Eggers QC and Ms Josephine Higgs (instructed by Reynolds Porter Chamberlain LLP) for the Appellants, Novae Corporate Underwriting Ltd and Others
Mr Dominic Kendrick QC, Mr Richard Harrison and Mr Benjamin Parker (instructed by Addleshaw Goddard LLP) for the Respondents, i.e. Rathbone Brothers Plc and Mr Michael Paul Egerton-Vernon
Hearing date: 30 June and 1 and 2 July 2014
These appeals concern disputes about the construction and effect of the excess layer of a professional indemnity policy issued to Rathbone Brothers plc ("Rathbone plc") by the members of Lloyd's Syndicate 2007 and other underwriters ("the excess insurers") for the 2008 year of account. Rathbone plc is a substantial international group whose trust business included the management of family trusts for wealthy clients. The disputes arise out of litigation before the courts of Jersey brought by certain beneficiaries of a discretionary trust set up by the late Mr Jack Walker, an industrialist and for many years chairman of Blackburn Rovers FC ("the Walker Trust"). These beneficiaries allege that the trustees, who at the material time included Paul Egerton- Vernon ("PEV"), a solicitor who acted as an employee of, and subsequently a consultant to, Rathbone plc's Jersey subsidiary, made poor investment decisions in breach of their professional and fiduciary duties from the end of 1999.
The excess insurers contend that for various reasons PEV is not covered by the policy either at all or with respect to the particular liability in issue. Furthermore, they submit that even if they are liable to PEV, they are only liable for the excess after other sources of insurance and indemnity have been exhausted. This includes an indemnity under which Rathbone has contractually agreed to indemnify PEV from liability up to a certain level (£40 million per event excluding fraud and wilful misconduct). Furthermore, the insurers submit that they are entitled to be subrogated to PEV's contractual right to the indemnity. The underwriter of the primary policy, AIG, played no part in these proceedings. It has accepted cover whilst reserving its position depending on the outcome of these proceedings.
Burton J found that PEV could recover under the policy and that the excess insurers were not entitled to rely upon the excess clause. However, he held that they were subrogated to PEV's right to sue on the indemnity once they had paid out under the policy. The excess insurers appeal the two findings which went against them and Rathbone plc appeals the finding that the insurers have an effective right of subrogation against them.
The background
PEV has been a solicitor since 1971. He moved to Jersey in 1984 and thereafter developed an international practice in trusts. He has been a trustee of a substantial number of trusts, including the Walker Trust. When he first went to Jersey he became a partner of Nigel Harris and Partners. In 1996 that firm became responsible for carrying out the administration of the Walker Trust pursuant to an administration agreement. In November 1998 it transferred its trust business to Nigel Harris Trust Company Limited ("NHTC") and PEV became a shareholder and director of that company.
On 31 March 2000, NHTC was acquired by Rathbone plc. By an agreement dated 31 March 2000 ("the employment contract"), PEV became an employee of NHTC, which changed its name on 7 May 2002 to Rathbone Trust Company Jersey Limited ("Rathbone Trustees"). On 31 July 2003, Rathbone Trustees and Rathbone plc entered into what was entitled "An Instrument of Release and Indemnity" with PEV ("the Rathbone indemnity"). This indemnified him with respect to certain liabilities arising from the performance of his duties. PEV ceased to work full time on 30 June 2007 and from 1 July he became a consultant of Rathbone Trustees and entered into a number of consecutive agreements on materially the same terms, commencing with an agreement dated 3 August 2007 ("the consultancy agreement"). (On 15 October 2008 Rathbone Trustees was acquired by Hawksford Holdings Limited but nothing turns on that transfer in this appeal because the claim is made under the 2008–2009 policy in relation to the period ending with the acquisition of Rathbone Trustees.)
PEV had been appointed a personal trustee of the Walker Trust on 9 July 1987 and he remained in that office until he retired on 21 July 2009. Lex Nominees International Limited, a company supplied by Nigel Harris & Partners, was at that time appointed a corporate trustee. It is normal in Jersey to have such an arrangement to ensure continuity in the succession of trustees and also the involvement of an individual with personal responsibility towards the Trust. Subsequently in July 1997 another company, Walker Representatives Limited, replaced Lex Nominees as the corporate trustee. Its directors were partners or directors of Rathbone Trustees and included PEV.
After Rathbone plc acquired NHTC, the responsibility for the administration of the Walker Trust pursuant to the 1996 administration agreement fell on Rathbone Trustees. The administration agreement set out the terms on which the Trust was administered. This included procuring the services of its directors to act in their capacity as directors of Walker Representatives Limited, the corporate trustee. Accordingly, Rathbone Trustees had detailed involvement in all aspects of running the Trust. The fees for their services did not distinguish the different functions of personal trustee, corporate trustee, and administration.
Nigel Harris & Partners, and subsequently Rathbone Trustees, submitted invoices at all times from 1996 onwards to the Trust for all services provided to them. The invoice would identify in some detail the time spent by various officers and employees of Rathbone Trustees, including PEV, without differentiation as to whether these services were provided in respect of administration or corporate trusteeship or, in the case of PEV, in his capacity as a personal trustee. This basis of charging was never questioned by the trustees.
As an employee of Rathbone Trustees from 31 March 2000, PEV was remunerated pursuant to his employment contract. This provided for a six-figure salary, together with certain benefits, specifically on the basis that the sum paid was inclusive of any remuneration to which he may be entitled by way of holding office in any other external body. Accordingly, he had to give credit to Rathbone Trustees in respect of the remuneration he received by virtue of being a personal trustee of the Walker Trust. This arrangement continued when he became a consultant. His remuneration was then one half of all time-costed fees recorded and billed to clients and paid, but it was specifically provided by clause 5.2 that "the consultancy fee will not include any fixed trustee or director's responsibility fees which shall accrue to [Rathbone Trustees] absolutely".
I have referred to the Rathbone Indemnity made on 31 July 2003 between Rathbone plc, Rathbone Trustees, and PEV. The recitals to it were as follows:
"At the request of the Company, the Employee acts on behalf of the Company in some or all of the following capacities:
"A.1 as a director of companies administered by the Company or others"
A.2 as a trustee
A.3 as a director of corporate trustees which are Group Members …..
B. In consideration of the Employee's willingness to act or continue to act in the capacities set out above the Company and Rathbone (at the request of the Company) are willing to release and indemnify the Employee in the following manner."
The terms of the Indemnity are that PEV will be indemnified by both Rathbone plc and Rathbone Trustees, whose liability is joint and several, for liabilities arising from the performance of his services, excluding liabilities arising from fraud or wilful misconduct. There is a limit of £40 million "in respect of each event giving rise to any liabilities."
There is no specific reference in the Rathbone indemnity to any insurance arrangements, although Rathbone Trustees did in fact provide insurance for its staff as required by Jersey financial regulations. However, the consultancy agreement, made in August 2003, the month after the Rathbone indemnity had been entered into, contained an express clause concerning the provision of professional indemnity insurance in the following terms:
"[Rathbone Trustees] will provide you with professional indemnity insurance (on a similar basis to that provided to [Rathbone Trustees]' staff) for work done and services provided to specified clients and any clients for which Rathbone Trustees receive appropriate fees."
Rathbone plc took out insurance for itself and its subsidiaries, including Rathbone Trustees, with AIG and the excess insurers. AIG is responsible for the first layer of £5million, and the excess insurers are responsible for the excess, limited to £45million.
The appeal
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